Advanzeon Solutions, Inc. - Quarter Report: 2001 November (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

COMPREHENSIVE CARE CORPORATION

200 South Hoover Blvd, Suite 200, Tampa, FL 33609

(813) 288-4808

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date:

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Index

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PART I – FINANCIAL INFORMATION

Item 1 — Consolidated Financial Statements

CONSOLIDATED BALANCE SHEETS

See accompanying notes.

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Consolidated Statements of Operations

(Unaudited)
(Amounts in thousands, except per share amounts)

See accompanying notes.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes

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NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The consolidated balance sheet as of November 30, 2001, and the related consolidated statements of operations and cash flows for the six months ended November 30, 2001 and November 30, 2000 are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. The results of operations for the six months ended November 30, 2001 are not necessarily indicative of the results to be expected during the balance of the fiscal year.

     The consolidated financial statements do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The balance sheet at May 31, 2001 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statement presentation. Notes to consolidated financial statements included in Form 10-K for the year ended May 31, 2001 on file with the Securities and Exchange Commission provide additional disclosures and a further description of accounting policies.

     The Company’s financial statements are presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recovery and classification of assets or the amount and classification of liabilities that may result from the outcome of the uncertainties described in Note 3 — “Liquidity and Capital Resources”.

     The accrued claims payable liability represents the estimated ultimate net amounts owed for all behavioral healthcare services provided through the respective balance sheet dates. The unpaid claims liability is estimated using an actuarial paid completion factor methodology and other statistical analyses. These estimates are subject to the effects of trends in utilization and other factors. Although considerable variability is inherent in such estimates, management believes that the unpaid claims liability is adequate. The estimates are continually reviewed and adjusted as experience develops or new information becomes known with adjustments included in current operations.

     The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

NOTE 2 – RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets”, which establishes new standards for the treatment of goodwill and other intangible assets. SFAS 142 is effective for fiscal years beginning after December 31, 2001 and permits early adoption for companies with a fiscal year beginning after March 15, 2001. SFAS 142 prescribes that amortization of goodwill will cease as of the adoption date. The Company has elected to adopt SFAS 142 effective June 1, 2001 and, as a result, there has been no amortization expense recorded during Fiscal 2002 (see Note 6). In accordance with SFAS 142, the Company has performed an impairment test within six months of the adoption date and will perform one at least annually thereafter and whenever events and circumstances occur that might effect the carrying value of these assets.

NOTE 3 — LIQUIDITY AND CAPITAL RESOURCES

     At November 30, 2001, the Company had unrestricted cash and cash equivalents of $4.1 million. During the six months ended November 30, 2001, $1.2 million was provided by the Company’s operating activities. The Company reported net income of approximately $87,000 for the six months ended November 30, 2001, which includes approximately $55,000 specific to the cumulative effect of a change in accounting principle (see Note 6) and a $66,000 bad debt recovery specific to one contract that terminated in Fiscal 1999. This compares to a net loss of $1.1 million for the six months ended November 30, 2000. The Company has an accumulated deficit of $63.5 million and total stockholders’ deficit of $11.7 million as of November 30, 2001. Additionally, the Company’s current assets at November 30, 2001 amounted to approximately $8.3 million and current liabilities were approximately $19.9 million, resulting in a working capital deficiency of approximately $11.6 million. The working capital deficiency referred to above results primarily from a $12.1 million liability related to Federal income tax refunds received in

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prior years. The ultimate outcome of the Internal Revenue Service audit whereby it is seeking recovery of the refunds from the Company, including the amount to be repaid, if any, and the timing thereof, is not determinable (see Note 7 — “Income Taxes”).

     Management cannot state with any degree of certainty whether any required additional equity or debt financing will be available to it during Fiscal 2002 and, if available, that the source of financing would be available on terms and conditions acceptable to the Company. The Company does not currently engage in transactions relating to market sensitive risk instruments.

     The above conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustment that may result from the outcome of this uncertainty.

     During Fiscal 2001 and Fiscal 2000, management took steps to trim costs and save cash, including making significant staff reductions, centralizing certain contract management and clinical functions, and eliminating the Company’s California administrative office and related executive staff positions. The Company’s continuation as a going concern is dependent upon its ability to maintain profitability, to generate sufficient cash flow to meet its obligations on a timely basis, and to obtain additional financing as may be required.

NOTE 4 — MAJOR CUSTOMERS/CONTRACTS

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     The Company’s contracts with its customers are typically for initial one-year terms, with automatic annual extensions. Such contracts generally provide for cancellation by either party with 60 to 90 days’ written notice.

NOTE 5 — NOTES RECEIVABLE

     In Fiscal 2001, the Company entered into a prepayment agreement and note modification with Jefferson Hills Corporation (“JHC”) in connection with the secured promissory note, which originated out of the sale in Fiscal 1999 of the Company’s Aurora, Colorado facility to JHC. The terms of the prepayment agreement required JHC to immediately remit $500,000 to the Company as a prepayment on the note. Additionally, the note was modified to reflect a remaining balance due totaling $170,000 and to require JHC to make monthly principal and interest payments until April 2006. One final principal payment in the amount of approximately $146,000 will be due from JHC in April 2006. As an inducement to JHC to make such prepayment, the Company credited JHC with an aggregate of approximately $996,000. As a result, the Company recorded a non-operating loss during the six months ended November 30, 2000 of approximately $496,000 in connection with this transaction.

NOTE 6 — GOODWILL

     Effective June 1, 2001, the Company adopted, on a prospective basis, SFAS 142, “Goodwill and Other Intangible Assets” (see Note 2). As a result of the early adoption of SFAS 142, no amortization expense was recorded during the six months ended November 30, 2001 compared to approximately $36,000 of amortization expense recorded during the six months ended November 30, 2000. SFAS 142 requires the elimination of any unamortized deferred credits immediately upon adoption of SFAS 142 and, as a result, the Company recognized $55,000 as the cumulative effect of a change in accounting principle during the quarter ended August 31, 2001.

     The following table presents net income (loss) and the earnings (loss) per basic and diluted share on a pro forma basis after eliminating amortization expense for the three and six month periods ended November 30, 2000. As a result, Fiscal 2001 results are comparable with Fiscal 2002 (in thousands, except per share amounts):

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NOTE 7 — INCOME TAXES

     The Company’s provision for income taxes differs from the statutory rate of 34% due, primarily, to the Company’s increased valuation allowance for losses generated during the six months ended November 30, 2000.

     In connection with the filing of its Federal income tax returns for fiscal years 1995 and 1996, the Company filed a tentative refund claim to carry back losses described in Section 172(f) of the Internal Revenue Code (“IRC”), requesting a refund of $9.4 million and $5.5 million, respectively, of which refunds of $9.4 million and $5.4 million were received. In addition, the Company also filed amended Federal income tax returns for fiscal years prior to 1995, requesting similar refunds for losses carried back under Section 172(f) of $6.2 million for 1986; $0.4 million for 1985; $0.7 million for 1983; and $0.4 million for 1982, a total of $7.7 million.

     Section 172(f) of the IRC provides for a ten year net operating loss carryback for specific losses attributable to (1) a product liability or (2) a liability arising under a federal or state law or out of any tort if the act giving rise to such liability occurs at least three years before the beginning of the taxable year. The applicability of Section 172(f) to the type of business in which the Company operates is unclear. No assurance can be provided that the Company will be able to retain the refunds received to date or that the other refunds requested will be received.

     During fiscal years 1997 and 1996, the Company recognized a portion of the refunds received as a tax benefit of $0.3 million and $2.4 million, respectively. The balance of the refunds received, $12.1 million, is recorded as a deferred liability, “Unbenefitted tax refunds received”, pending resolution by the Internal Revenue Service (“IRS”) of the appropriateness of the 172(f) carryback. The other refunds requested under Section 172(f) for prior years of $7.7 million have not been received nor has the Company recognized any tax benefit related to these potential refunds.

     On August 21, 1998, the Company received an examination report, dated August 6, 1998, from the IRS advising the Company that it was disallowing $12.4 million of the $14.8 million of refunds previously received, and the additional refunds requested of $7.7 million. If the position of the IRS were to be upheld the Company would be required to repay $12.4 million in refunds previously received, plus accrued interest of approximately $7.4 million through November 30, 2001. Accordingly, the Company would be entitled to a repayment of the fees advanced to its tax advisor relating to these refunds of approximately $2.5 million, which is reported as “other receivable” in the accompanying balance sheets. This report commenced the administrative appeals process. The Company filed a protest letter with the IRS on November 6, 1998. The IRS reserves the right to assess and collect the tax previously refunded to the Company at any time during the appeals process.

     On July 11, 2000, the Company submitted an Offer in Compromise (the “Offer”) to the Appeals Office of the IRS to resolve the controversy with respect to the refunds at a substantially reduced amount. The IRS is currently evaluating the Offer. A preliminary meeting with the IRS with respect to the Offer took place in October 2000 and, subsequent to this meeting, the Company has provided additional documents to the IRS. The Company has continued its discussions with the IRS during Fiscal 2002 and expects to continue such discussions during the third quarter of Fiscal 2002. There can be no assurance that the IRS will accept the Offer.

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NOTE 8 – BASIC AND DILUTED EARNINGS (LOSS) PER SHARE

     Net earnings (loss) per share is computed using the weighted average number of common shares outstanding during the period. Convertible debentures were not included in the calculation of earnings (loss) per share as they are antidilutive. The following table sets forth the computation of basic and diluted earnings (loss) per share in accordance with Statement No. 128, Earnings Per Share:

Authorized shares of common stock reserved for possible issuance for convertible debentures and stock options are as follows at November 30, 2001:

NOTE 9 — COMMITMENTS AND CONTINGENCIES

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     From time to time, the Company and its subsidiaries are also parties and their property is subject to ordinary, routine litigation incidental to their business. In some pending cases, claims may exceed insurance policy limits and the Company or any one of its subsidiaries may have exposure to a liability that is not covered by insurance. Management believes that the outcome of such lawsuits will not have a material adverse impact on the Company’s financial statements.

REGULATORY MONITORING AND COMPLIANCE

     The Company is subject to extensive and evolving state and federal regulations, including licensure and compliance with regulations related to healthcare providers, insurance companies, and other risk assuming entities. These laws and regulations may vary considerably among states and, as a result, the Company may be subject to the specific regulatory approach adopted by each state for the regulation of managed care companies and for providers of behavioral healthcare treatment services. Currently, management cannot quantify the potential effects of additional regulation of the managed care industry, but such costs could have an adverse effect on future operations to the extent that they are not able to be recouped in future managed care contracts.

     The Company is subject to the requirements of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). The purpose of the HIPAA provisions is to improve the efficiency and effectiveness of the healthcare system through standardization of the electronic data interchange of certain administrative and financial transactions and, also, to protect the security and privacy of transmitted information. Entities subject to HIPAA include all healthcare providers and all healthcare plans. To meet the specific requirements of HIPAA, the Company will incur costs to insure the adequacy and security of its healthcare information system and communication networks. Additionally, the Company may incur costs to implement the specific transaction codes required by HIPAA for claims, payment, enrollment, eligibility, or to become compliant with security and privacy rules, which may be more stringent for providers of certain behavioral healthcare services. The expected timetable to be compliant is currently October 2002 for transaction code changes and April 2003 for compliance with the privacy rules. The Company is currently evaluating its systems and policies that are impacted by HIPAA. While these efforts will be ongoing, the Company expects to meet all compliance rules and timetables with respect to the HIPAA regulations. Failure to do so may result in penalties and have a material adverse effect on the Company’s ability to retain its customers or to gain new business.

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ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This Quarterly Report on Form 10-Q includes forward-looking statements, the realization of which may be impacted by certain important factors discussed below under “Risk Factors – Important Factors Related to Forward-Looking Statements and Associated Risks” (page 13).

GENERAL

RESULTS OF OPERATIONS

     The Company reported net income of $33,000, or $0.01 earnings per share, for the quarter ended November 30, 2001 compared to $29,000, or $0.01 earnings per share, for the quarter ended November 30, 2000. Net income for the six months ended November 30, 2001 was $87,000, or $0.02 earnings per share, compared to a net loss of $1.1 million, or $0.28 loss per share, for the six months ended November 30, 2000. The following tables summarize the Company’s financial data for the three and six months ended November 30, 2001 and 2000 (in thousands):

THE THREE MONTHS ENDED NOVEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED NOVEMBER 30, 2000:

     The Company reported operating income of $57,000 for the quarter ended November 30, 2001. Operating revenues increased by 45.7%, or $2.0 million, to $6.5 million for the quarter ended November 30, 2001 compared to $4.4 million for the quarter ended November 30, 2000. This increase is attributable to two major contracts implemented during Fiscal 2001 and membership growth from state sponsored children’s health insurance programs.

     Healthcare operating expenses increased by approximately $1.9 million, or 53.1%, for the quarter ended November 30, 2001 as compared to the quarter ended November 30, 2000. This increase is directly attributable to revenue growth as described above. Healthcare operating expense as a percentage of operating revenue increased from 81.2% for the quarter ended November 30, 2000 to 85.4% for the quarter ended November 30, 2001. This increase is primarily attributable to a change in revenue mix resulting in increased Medicaid membership during Fiscal 2002 compared to Fiscal 2001.

     General and administrative expenses decreased by approximately $0.1 million, or 6.0%, for the quarter ended November 30, 2001 as compared to the quarter ended November 30, 2000. This decrease is attributable to the Company’s continuing efforts to reduce general and administrative costs. General and administrative expense as a percentage of operating revenue decreased from 20.9% for the quarter ended November 30, 2000 to 13.5% for the quarter ended November 30, 2001.

     Other operating expenses decreased by $0.1 million for the quarter ended November 30, 2001 compared to the quarter ended November 30, 2000. This decrease is primarily attributable to a reduction in depreciation expense, which results from assets being fully depreciated and, also, from decreases in capital spending.

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THE SIX MONTHS ENDED NOVEMBER 30, 2001 COMPARED TO THE SIX MONTHS ENDED NOVEMBER 30, 2000:

     The Company reported operating income of $60,000 for the six months ended November 30, 2001. Operating revenues increased by 54.0%, or $4.4 million, to $12.6 million for the six months ended November 30, 2001 compared to $8.2 million for the six months ended November 30, 2000. This increase is attributable to two major contracts implemented during Fiscal 2001 and membership growth from state sponsored children’s health insurance programs.

     Healthcare operating expenses increased by approximately $3.9 million, or 57.3%, for the six months ended November 30, 2001 as compared to the six months ended November 30, 2000. This increase is directly attributable to revenue growth as described above. Healthcare operating expense as a percentage of operating revenue increased from 83.4% for the six months ended November 30, 2000 to 85.2% for the six months ended November 30, 2001. This increase is primarily attributable to a change in revenue mix resulting in increased Medicaid membership during Fiscal 2002 compared to Fiscal 2001.

     General and administrative expenses decreased by approximately $0.2 million, or 9.7%, for the six months ended November 30, 2001 as compared to the six months ended November 30, 2000. This decrease is attributable to the Company’s continuing efforts to reduce general and administrative costs. General and administrative expense as a percentage of operating revenue decreased from 23.0% for the six months ended November 30, 2000 to 13.5% for the six months ended November 30, 2001.

     Other operating expenses decreased by $0.2 million for the six months ended November 30, 2001 compared to the six months ended November 30, 2000. This decrease is primarily attributable to a reduction in depreciation expense, which results from assets being fully depreciated and, also, from decreases in capital spending.

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Except for historical information, the matters discussed that may be considered forward-looking statements may be subject to certain risks and uncertainties that could cause the actual results to differ materially from those projected, including uncertainties in the market, pricing, competition, procurement efficiencies, other matters discussed in this quarterly report on Form 10-Q, and other risks detailed from time to time in the Company’s SEC reports.

RISK FACTORS

IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

     This Quarterly Report on Form 10-Q contains certain forward-looking statements that are based on current expectations and involve a number of risks and uncertainties. Factors that may materially affect revenues, expenses and operating results include, without limitation, the Company’s success in (i) expanding the managed behavioral healthcare operations, (ii) effective management in the delivery of services, (iii) risk and utilization in context of capitated payouts, and (iv) retaining certain refunds from the IRS.

CONCENTRATION OF RISK

     The Company currently has thirteen contracts with four HMOs to provide behavioral healthcare services under commercial, Medicaid, and Medicare plans, to contracted members in Connecticut, Florida and Texas. These combined contracts represent approximately 58.5% and 44.7% of the Company’s operating revenue for the six months

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ended November 30, 2001 and 2000, respectively. The terms of each contract are generally for one-year periods and are automatically renewable for additional one-year periods unless terminated by either party.

UNCERTAINTY OF FUTURE PROFITABILITY

     As of November 30, 2001, the Company had stockholders’ deficit of $11.7 million and a working capital deficiency of approximately $11.6 million. The Company reported net income for the six months ended November 30, 2001 of approximately $0.1 million. There can be no assurance that the Company will be able to sustain profitability or that the Company can maintain positive cash flow on an ongoing basis. Present results of operations are not necessarily indicative of anticipated future results of operations.

NEED FOR ADDITIONAL FUNDS; UNCERTAINTY OF FUTURE FUNDING

     During recent fiscal years, a principal source of liquidity has been the sale of hospital facilities. During Fiscal 1999, the Company completed its plan to dispose of its hospital business segment and as such, does not currently own any hospital facilities. Subject to various market conditions, an additional source of liquidity could be the issuance of additional equity securities, which could result in substantial dilution to stockholders.

     The Company may be required to repay a portion of the tax refunds received from the Internal Revenue Service for Fiscal 1996 and 1995, which amounted to $9.4 million and $5.4 million, respectively (see Part II — Item 1, Legal Proceedings, below). Further, the Company may be required to repay some amount to Medi-Cal in connection with the judgment entered on February 26, 1999, which is more fully described under Part II — Item 1, Legal Proceedings, below.

UNCERTAINTY OF PRICING; HEALTHCARE REFORM AND RELATED MATTERS

     Managed care operations are at risk for costs incurred to supply agreed upon levels of service. Failure to anticipate or control costs could have material, adverse effects on the Company. Additionally, the business of providing services on a full-risk capitation basis exposes the Company to the additional risk that contracts negotiated and entered into may ultimately be determined to be unprofitable if utilization levels require the Company to deliver and provide services at capitation rates which do not account for or factor in such utilization levels.

     The levels of revenues and profitability of healthcare companies may be affected by the continuing efforts of governmental and third party payers to contain or reduce the costs of healthcare through various means. In the United States, there have been, and the Company expects that there will continue to be, a number of federal and state proposals to implement governmental controls on the price of healthcare. It is uncertain what legislative proposals will be adopted or what actions federal, state or private payers for healthcare goods and services may take in response to any healthcare reform proposals or legislation. The Company cannot predict the effect healthcare reforms may have on its business and no assurance can be given that any such reforms will not have a material adverse effect on the Company.

SHARES ELIGIBLE FOR FUTURE SALE

     The Company has issued or committed to issue 9,000 shares related to the 71/2% convertible subordinated debentures due April 15, 2010, and options or other rights to purchase approximately 1,103,000 shares. The Company may contemplate issuing additional amounts of debt, equity or convertible securities in public or private transactions for use in fulfilling its future capital needs (see “Need for Additional Funds; Uncertainty of Future Funding”). Issuance of additional equity could adversely affect the trading price of the Company’s Common Stock.

ANTI-TAKEOVER PROVISIONS

     The Company’s Restated Certificate of Incorporation provides for 60,000 authorized shares of Preferred Stock, the rights, preferences, qualifications, limitations and restrictions of which may be fixed by the Board of Directors without any vote or action by the stockholders that could have the effect of diluting the Common Stock or reducing working capital that would otherwise be available to the Company. As of November 30, 2001, there are no outstanding shares of Preferred Stock. The Company’s Restated Certificate of Incorporation also provides for a classified board of directors with directors divided into three classes serving staggered terms. The Company’s stock option plans generally provide for the acceleration of vesting of options granted under such plans in the event of certain transactions which result in a change of control of the Company. Section 203 of the General Corporation Law

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of Delaware prohibits the Company from engaging in certain business combinations with interested stockholders. In addition, each share of the Company’s Common Stock includes one right on the terms and subject to the conditions of the Rights Agreement between the Company and Continental Stock Transfer & Trust Company. These provisions may have the effect of delaying or preventing a change in control of the Company without action by the stockholders and therefore could adversely affect the price of the Company’s Common Stock or the possibility of sale of shares to an acquiring person.

     Assumptions relating to the foregoing involve judgments that are difficult to predict accurately and are subject to many factors that can materially affect results. Budgeting and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause the Company to alter its budgets which may in turn affect the Company’s results. In light of the factors that can materially affect the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved.

PART II – OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

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     From time to time, the Company and its subsidiaries are also parties to and their property is subject to ordinary, routine litigation incidental to their business. In some pending cases, claims may exceed insurance policy limits and the Company or any one of its subsidiaries may have exposure to liability that is not covered by insurance. Management believes that the outcome of such lawsuits will not have a material adverse impact on the Company’s financial statements.

ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On November 2, 2001, the Company held its 2001 Annual Meeting of Stockholders. The meeting was held to elect one (1) Class III Director to the Company’s Board of Directors.

     Stockholders of the Company’s Common Stock, $.01 par value, of record as of September 20, 2001 (the “Record Date”) were entitled to notice of the Annual Meeting and to vote at such meeting. As of the Record Date, there were 3,867,303 shares of Common Stock entitled to vote at the meeting. Shareholders holding 3,405,785 shares of Common Stock, representing a majority of the Common Stock and representing a quorum (approximately 88.1% of the total shares entitled to vote), were represented at the meeting either in person or by proxy.

RESULTS OF ELECTION OF DIRECTORS

     Shareholders were asked to elect one (1) Class III Director to the Company’s Board of Directors. Set forth below is the name of the person nominated for and elected to serve on the Company’s Board of Directors for a term of three (3) years until the year 2004 Annual Meeting of Stockholders and until his successor is duly elected and qualified as well as the results of the voting for the nominee.

     The Board of Directors of the Company is now comprised of the following two (2) directors: Mr. Robert J. Landis, the sole Class III Director whose term expires at the 2004 Annual Meeting of Stockholders and Ms. Mary Jane Johnson, the sole Class I Director whose term expires at the 2003 Annual Meeting of Stockholders.

ITEM 6 — EXHIBITS AND REPORTS ON FORM 8-K

     Reports on Form 8-K – None.

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SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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